All media reported on the outcome of Defense Minister Ehud Barak's
visit to Sharm el-Sheikh on Wednesday. Media reported that Barak
and Egyptian President Hosni Mubarak set up a joint team to fight
weapons smuggling along the Philadelphi corridor into the Gaza
Strip. The Jerusalem Post reported that Egyptian Intelligence
Minister Omar Suleiman told the newspaper on Wednesday that Egypt
will crack down on smugglers until Israel no longer has anything to
complain about. The Jerusalem Post reported that Suleiman and
Egyptian Defense Minister Mohamed Hussein Tantawi told Barak about
Egypt's recent million-dollar purchase of tunnel-detection systems,
first reported by the Post on Tuesday, which they plan to begin
using along the corridor in the next few months. Mubarak was quoted
as saying in an interview with Yediot that FM Tzipi Livni crossed
the line when she criticized the Egyptian forces along the
Sinai-Gaza border. Israel Radio quoted the French press agency AFP
as saying that Mubarak conveyed to Barak a message from Syrian
President Bashar Assad during their meeting. Barak's office refused
to comment on the report.

All media reported that PM Olmert and Palestinian President Mahmoud
Abbas are scheduled to meet in Jerusalem today for the first time
since the Annapolis conference in an effort to move forward
negotiations. The Jerusalem Post quoted GOI sources as saying that
the Olmert-Abbas channel has been "more fruitful" in the past than
meetings between the wider negotiating teams headed by Foreign
Minister Tzipi Livni and former PA prime minister Ahmed Qurei. The
Jerusalem Post reported that government officials recently expressed
frustration that the more conciliatory positions Abbas took during
recent meetings with Olmert were not passed on to the Palestinian
negotiating team.

Leading media quoted PM Olmert as saying on Wednesday during a
meeting with the Meretz party's Knesset faction that he will not
resign in the aftermath of the publication of the Winograd report.

The Jerusalem Post quoted Hadash party Chairman MK Muhammad Barakei
as saying on Wednesday in an interview with the Palestinian Quds
Press agency that Israel's plan to build a new neighborhood near the
disused Atarot Airport in northeastern Jerusalem reveals the
government's true face as a "government of war and occupation" that
is guilty of warmongering against the Palestinians and the Arab
world.

Ha'aretz reported that on Wednesday Social Justice, the party of
tycoon Arkady Gaidamak, began its formal foray in Israeli politics.
The new party will participate in municipal elections throughout the
country, seeking the mayor's post in 22 communities and positions on
the local council in 55 others. The candidates were mostly drawn
from other parties, including Likud, Shas, and Yisrael Beiteinu, but
there are also behind the scenes talks with retired and active
officers in the IDF and the police. So far, Gaidamak has personally
focused on broadening his party's appeal in Jerusalem, where he
intends to run for mayor. In the near future, the party is expected
to be reinforced with Uri Shani, Ariel Sharon's former bureau
chief.

Major media quoted Iranian Defense Minister Mostafa Mohammad Najar
as saying on Wednesday that Russia will supply Iran with
state-of-the-art air defense systems. The media said that a
military offensive against Iran will consequently become much more
complex. Ha'aretz and The Jerusalem Post reported that on Wednesday
Ciamak Morsathegh, the head of the Tehran Jewish Committee,
described the recent immigration of 40 Iranian Jews to Israel as
part of a misinformation campaign. He was quoted as saying that
Jews in Iran were not in danger. The media reported that senior
government sources have criticized the Jewish Agency over the "media
festival" that accompanied the arrival of those Jews, which might
endanger the lives of those Jews who stayed behind. The Jewish
Agency defended its decision to publicize the event.

Maariv reported on a steep increase -- 36% -- in new investigations
in 2006 of soldiers susupected of hurting Palestinians.

Ha'aretz wrote that the Turkish Daily News will report today that
crews from Israel Aerospace Industries (IAI), operating unmanned
aerial vehicles (UAV's), are participating in Turkish military
operations against PKK militants in northern Iraq. Ha'aretz also
cited the Turkish newspaper, which observed that a senior Turkish
officer expressed criticism that IAI and Elbit, which is also part
of the Heron UAV program, have failed to meet their contractual
obligations and have delayed the supply of UAV's ordered for the
Turkish Air Force in 2005.

Ha'aretz quoted an official as saying on Wednesday that the Interior
Ministry will form a tribunal presided over by a judge to hear
petitions by applicants who have been denied permanent residency
status.

------------
1. Mideast:
------------

Summary:
--------

Military correspondent Amos Harel wrote from Sharm el-Sheikh on page
one of the independent, left-leaning Ha'aretz: "Foreign Minister
Tzipi Livni demonstrated a shocking lack of caution.... Barak found
himself in a rare position: The Defense Minister suddenly became the
'good Israeli' in Arab eyes."

Military correspondent Yaakov Katz wrote in the conservative,
independent Jerusalem Post: "With very few friends in the
neighborhood, Egypt stands out. On the other side, Egypt views its
relations with Israel as a strategic asset."

Columnist Ari Shavit wrote in Ha'aretz: "Yes, Olmert must resign.
But his resignation is not an end in itself. His resignation must
signal and bring about an overall change in concepts and values.

Block Quotes:
-------------

I. "Becoming the 'Good Israeli'""

Military correspondent Amos Harel wrote from Sharm el-Sheikh on page
one of the independent, left-leaning Ha'aretz (12/27): "Foreign
Minister Tzipi Livni demonstrated a shocking lack of caution on
Tuesday when she dared to speak the truth about Egypt's job
performance in preventing weapons smuggling from Sinai into Gaza....
The Egyptians were insulted to the depths of their souls -- and
Barak found himself in a rare position: The Defense Minister
suddenly became the 'good Israeli' in Arab eyes. The fact that
Barak privately agrees with Livni changes nothing. Egypt's
President Hosni Mubarak, his intelligence chief Omar Suleiman and
Defense Minister Hussein Tantawi took pains to treat Barak warmly,
with the requisite public embraces.... Apart from the insult,
something else is worrying the Egyptians: The fear that Israel is
behind the initiative to freeze $100 million in U.S. aid to Egypt,
out of a total of $2 billion, as punishment for the smuggling.
Barak explained that it is not the Israeli government that is
involved, only a few right-wing Knesset members who raised the idea
in Congress. But Barak, his deputy, Knesset Member Matan Vilnai,
and Amos Gilad, head of the Defense Ministry's political-security
department, all said the atmosphere at the talks was good and
constructive. Was any real progress made? Apparently not. In any
event, both sides chose not to go into detail."

II. "Israel, Egypt Need Each Other"

Military correspondent Yaakov Katz wrote in the conservative,
independent Jerusalem Post (12/27): "Despite [the current] tension
... Israel and Egypt are not ready give up the strategic alliance
they have managed to forge since they signed a peace agreement
almost 30 years ago. Both countries are also aware that they need
one another. Israel sees its peace with Egypt as a model for other
Arab and Muslim countries in the region with whom it would like to
normalize relations in the future. Israel also needs Egypt to
mediate its informal talks with Hamas, both over the possibility of
a hudna (cease-fire) with the terror group in the Gaza Strip, but
also about a possible prisoner exchange under which Shalit would be
released. With very few friends in the neighborhood, Egypt stands
out. On the other side, Egypt views its relations with Israel as a
strategic asset. Cairo recognizes the fact that Israel and the
Jewish lobby have a great deal of influence in Washington and would
not like to see that influence turned against them, as it almost did
with the videotapes [that showed the apathy of Egyptian forces to
arms smuggling]."

III. "One Last Chance"

Columnist Ari Shavit wrote in Ha'aretz (12/27): "If even after the
Winograd report Ehud Olmert continues to serve in his position, the
concept of responsibility will be of no significance in our lives.
However, there was another broad and profound meaning to the war.
It exposed that there is no congruence between 21st-century Israel
and the challenges it faces. The war exposed that the national
leadership is not worthy:... Another fact exposed in the war is that
the Israel Defense Forces is not the outstanding army that it has to
be.... Yes, Olmert must resign. But his resignation is not an end
in itself. His resignation must signal and bring about an overall
change in concepts and values. In about two weeks from now the
Winograd Commission report will be published.... In a sense, it will
be the day of the last chance. It will give all of us a belated and
final opportunity to internalize what we discovered during the
Second Lebanon War, and to heal Israel."

Washington correspondent Shmuel Rosner wrote in the independent,
left-leaning Ha'aretz: "Obama did try once or twice to reassure
those who are concerned over his cool policy toward Israel, and he
may succeed in doing so."

Block Quotes:
-------------

"Obama Backs Israel as Jewish State"

Washington correspondent Shmuel Rosner wrote in the independent,
left-leaning Ha'aretz (12/27): "Israelis who are following the [U.S.
presidential] elections and Obama have had difficulty understanding
his approach. He is certainly not naive, as some thought at the
outset. He is an idealist, but more sober than could be gleaned
from his first public appearances, which swept away his
audiences.... Among the three leading [Democratic] candidates he has
the least support in the Jewish community, with the highest
percentage of those who say they disapprove of him. Obama did try
once or twice to reassure those who are concerned over his cool
policy toward Israel, and he may succeed in doing so. He spoke to
the American Israel Public Affairs Committee and he promoted a law
allowing funds to be pulled out of companies doing business with
Iran. Last week in a foreign policy forum in Des Moines, Iowa,
whose main points were publicized on the blog of the Institute for
Public Affairs of the Orthodox Union, he spoke again about Israel.
His key statement was: 'The Palestinians would have to reinterpret
the notion of right of return in a way that would preserve Israel as
a Jewish state. It might involve compensation and other concessions

from the Israelis but ultimately Israel is not going to give up its
state.'"

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